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On March 25, 2014, a Circuit Court in Kentucky ruled in favor of those opposed to an interstate natural gas liquids (“NGLs”) pipeline’s potential use of eminent domain under the laws of the Commonwealth of Kentucky. The interstate pipeline is not subject to regulation by the Kentucky Public Service Commission (“KYPSC”), which was viewed as a key factor in the judge’s decision. The decision is subject to possible appellate review.

Generally, interstate natural gas pipelines regulated by the Federal Energy Regulatory Commission (“FERC”) obtain federal eminent domain rights and powers once FERC approves the pipeline project. Pipelines that transport liquid hydrocarbons (NGLs or oil) in interstate commerce are subject to slightly different FERC regulation, and do not obtain federal eminent domain rights and powers. Instead, interstate liquids lines must resort to state eminent domain statutes, if necessary. The use of federal eminent domain power, if available, is well established. However, as evidenced by this recent decision in Kentucky, this is not always the case under state eminent domain statutes.

A group called “Kentuckians United to Restrain Eminent Domain” pre-emptively filed suit in Circuit Court seeking a declaration that a planned interstate NGLs pipeline would not be able to use Kentucky’s eminent domain statute to condemn property for the planned route of that pipeline in Kentucky. The group alleged that company representatives negotiating with landowners for right of way claimed the pipeline company had the right to use eminent domain, if necessary.

The planned pipeline is 24-inches in diameter and will transport NGLs from the Marcellus and Utica shale formations in Pennsylvania, Ohio, and West Virginia to the Gulf Coast. It is not subject to regulation by the KYPSC. Group members – using words from the eminent domain statutory provisions -- argued that the pipeline would not be “in public service” or for “public use,” and argued that the NGLs are neither “oil or gas” nor “oil and gas products.” The pipeline argued to the contrary, including an argument that a particular chemical company in Kentucky might receive NGLs as feedstock for its plant from the pipeline.

The Circuit Court agreed with the citizens group that the pipeline would not be able to make use of Kentucky’s eminent domain statutory provisions to condemn property for the pipeline right of way. The Circuit Court agreed with the citizen group argument that only those regulated by the KYPSC are “in public service” and eligible to use Kentucky’s eminent domain powers. After interpreting the meaning of various amendments to the applicable statutory provisions, the Circuit Court further observed that the proposed pipeline will transport NGLs through Kentucky, but will not impact the energy needs of Kentuckians. The Circuit Court also rejected the pipeline’s federal common carrier argument that it provided a “public use” allowing it to make use of eminent domain powers; and, even if it did, the Circuit Court held that transporting NGLs is not the transportation of “oil or natural gas.” (The pipeline conceded that NGLs, while produced from similar compounds, are not equivalent to oil or natural gas.) “[T]he transportation of hazardous liquids interstate through Kentucky to the Gulf Coast does not justify granting a private company the right to condemn private property.”